Starting next month, Australian earners are set to benefit from the long-anticipated stage three tax cuts, potentially enhancing their home-buying prospects. New analysis from PRD Real Estate reveals that these tax cuts could significantly impact the borrowing power of homebuyers, especially those with higher incomes.
For instance, an individual earning $80,000 per year will pay approximately $1,600 less in income tax, boosting their borrowing capacity by $18,000. This means their potential home-buying budget could rise from $492,000 to $513,000, assuming they have a 20% deposit. The tax cuts will also provide even greater benefits to higher-income earners. A person earning $140,000 annually could see their borrowing power increase by nearly $38,000, raising their home-buying budget to $925,000 – a $47,000 boost.
BOA & Co. Chartered Accountants Can Help Maximize Your Borrowing Power
Here’s how the stage three tax cuts could impact your tax liability and borrowing power:
| Annual earnings | Financial year 2023-24 | Financial year 2024-25 | |||||
| Income tax payable | Borrowing power | Purchase price (assuming 20% deposit) | Income tax payable | Borrowing power | Purchase price (assuming 20% deposit) | ||
| $70,000 | $14,617 | $360,670 | $450,838 | $13,188 | $375,107 | $468,884 | |
| $80,000 | $18,067 | $393,596 | $491,994 | $16,388 | $410,558 | $513,197 | |
| $90,000 | $21,517 | $459,769 | $574,711 | $19,588 | $479,257 | $599,072 | |
| $100,000 | $24,967 | $525,943 | $657,428 | $22,788 | $547,957 | $684,946 | |
| $120,000 | $31,867 | $615,136 | $768,919 | $29,188 | $642,197 | $802,747 | |
| $140,000 | $39,667 | $702,364 | $877,955 | $35,938 | $740,037 | $925,046 | |
With the upcoming tax cuts, many Australians will see their financial situation improve, but it’s essential to ensure you’re leveraging these benefits effectively. BOA & Co. Chartered Accountants can help you understand how the stage three tax cuts impact your tax liability, income, and overall borrowing capacity.
Our team of experts can guide you through the tax changes, ensuring you take full advantage of the extra money in your pocket. By working closely with our accountants, you’ll be better equipped to make informed decisions about your home-buying budget and overall financial plan. Whether you’re a first-time homebuyer or looking to upgrade your property, we can assist you in optimizing your tax position and managing your financial future.
Wider Market Implications
While the tax cuts are expected to increase home-buying budgets for many, the effect may be more noticeable for higher earners. Those earning more than $100,000 a year will see the most significant increase in borrowing capacity. For example, a first-home buyer earning $100,000 could see their borrowing power rise from $525,000 to $547,000, raising their potential purchase price from $657,000 to $685,000. If they’re eligible for additional grants or schemes, such as a $30,000 first-home buyer grant in Queensland, their purchase price could rise even further, reaching $715,000.
In contrast, lower-income earners may find the impact of the tax cuts to be less significant. Nonetheless, these tax savings, when combined with federal homebuyer schemes like the Home Guarantee Scheme, could still provide meaningful financial relief and help increase housing accessibility for many Australians.
How much of the market is accessible?
Borrowers may find it easier to enter the property market after the stage 3 tax cuts.
With a 20% deposit, buyers across different income levels will now be able to afford a larger percentage of houses and units available in major capital city areas, as the below charts show.
Percentage of accessible houses by income level
Percentage of accessible units by income level
What About Mortgage Holders?
If you’re already a homeowner facing mortgage stress, the stage three tax cuts could provide much-needed relief by increasing your take-home pay and helping you better manage mortgage repayments. Recent findings from Roy Morgan suggest nearly 30% of mortgage holders were at risk of mortgage stress earlier this year, but the upcoming tax cuts could help reduce this number even if interest rates rise.
Even with potential rate hikes from the Reserve Bank of Australia (RBA), the additional post-tax income may help alleviate some financial strain for those struggling with mortgage repayments. As experts like Michele Levine of Roy Morgan suggest, these tax cuts could deliver financial relief to millions of Australians, including many mortgage holders.
Maximize your home-buying potential with the help of BOA & Co. Chartered Accountants. Our team of tax and financial experts can guide you through the upcoming stage three tax cuts, helping you understand their impact on your income and borrowing power. Contact us today at 1300 952 286, email service@boanco.com.au, or visit www.boanco.com.au to learn how we can help you achieve your homeownership goals and secure your financial future.